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Innovation: Connectivity - Mobility - Autonomy

Insurance telematics in Europe: The tipping point is near, part II

Mar 27, 2014

Historically, the European insurance telematics market existed mainly in countries plagued with insurance fraud, car theft and high insurance costs. But experts say all that is about to change. In the second of a two-part series, Brendan McNally reports on what is expected to happen.

France and Germany

Until now, neither France nor Germany has shown much interest in UBI. Auto insurance costs are relatively low and so are incidents of insurance fraud and car theft. As useful as such systems have proven themselves to be in the Italian and British markets, they are nevertheless expensive to operate and, with insurance rates already low, there isn’t much to drive them.

“In those two countries, it’s more difficult,” says Vincent Pavero, product manager at iMetrik Solutions. “They have a lower margin to pay for such technology. This is why today we don’t have massive deployments of UBI like we have in the U.K. and Italy. Of course, all insurance companies in Germany and France are looking at UBI and telematics, and are looking at finding new ways to bring telematics to the market.”

Also, in France, privacy concerns are a hindrance, according to Ofir Eyal, principal management consultant of The Boston Consulting Group. “There was a situation where customer privacy was breached quite a few years back, and the insurance regulators are still very touchy about the handling of telematics data," he says. “We see very low level activity in France regarding UBI.”

Still, Francisco José Jiménez Bonilla, head of insurance telematics for Telefónica Digital, sees Germany as a viable market for UBI, though not an easy one to penetrate. “There are a lot of factors including that, in Germany, the legal environment tends to ultra-protect the consumer,“ he says. “There are a lot of laws to comply with, and data privacy and security [are] crucial there. The other interesting thing is that there is not a big difference between the premiums that young people and other drivers pay."

Generali, for its part, considers both Germany and France “twoof the key European countries where telematics can play a significant role in the insurance business,” according to Andrea Jurkic, head of marketing strategy, insurance development, Generali Group. But Generali has yet to launch a UBI product in either country.“We are working to design the correct strategy in order to serve local customers in the most appropriate way due to the different economics figures compared to the Italian market where our telematics presence is already significant and profitable,” Jurkic says.

Pavero believes the key to bringing French and German drivers aboard UBI is to include it in a telematics package that focuses on value-added services. “You can’t just bring mileage metering because it’s not profitable,” he says. What drivers want, he says, are systems monitoring, knowing which components are nearing a breakdown, and the ability to automatically contact repair facilities.

(In November 2013, Telefónica’s German subsidiary signed a deal with Sparkassen DirektVersicherung (part of Germany’s largest financial services group) to launch an insurance telematics product for Germany. The product includes a range of value-added services, including accident notification, stolen vehicle tracking as well as driver behavior monitoring and feedback.)

The role or German OEMs

Eyal agrees, adding that he expects these value-added services to come through infotainment systems provided by OEMs, possibly to the detriment of insurers. “We’ve been chatting with a lot of insurers recently about their concerns about some of the things that have been happening in the OEM space,” he says. “The reason is that a lot of the OEMs are investing heavily in telematics infotainment in their cars … and the infotainment systems are becoming now a differentiating factor for the OEM.”

Eyal notes that, in Germany, drivers tend to stick with OEMs for repairs and maintenance and that OEMs have a reputation for ruthlessness when they see a market they want. In 2005, a single banking group had 60% of the new car loan market in Germany. But then OEMs got into the car loan business, and the banking group quickly found its market share cut down to 10%, according to Eyal.

The same might happen if OEMs get into car insurance. “We don’t necessarily believe OEMs will launch their own insurance companies, but they will team up with insurers to offer white label insurance products,” Eyal says. “And from a buyer behavior point-of-view, it makes perfect sense. You buy a car, and you’re offered a turn-key price; €75,000 and you get the whole thing, and that includes the insurance.”

Other UBI drivers

Still, others believe that the danger of the UBI market being overrun by OEM-installed infotainment systems is overblown. Pavero points out that the average car on the road in Europe is nine years old. And so, even if OEMs are able to put themselves into a first position by selling cars with UBI already installed, they would need years to get its technology into all the cars.

According to Pavero, it won’t be car OEMs to put UBI into European cars but Europe’s insurance giants operating in multiple markets. Think companies like Generali, Axa and Allianz. “In the U.S., despite its appearance, it is really many, many smaller markets,” he says. “State Farm in Maryland is not the same company as State Farm in Texas. Each state is kind of a small market. France and Germany are major markets with the biggest insurance companies there serving them.”

Pavero continues: “Those companies are thinking, How can I do a unique rollout with all our markets at the same time? How can we sell UBI in ten countries at once? … That’s the game changer. We’re going to see in the coming months insurance companies rolling out international variants of the same UBI technology.”

The Google wild card

A much bigger potential game changer, however, could be the looming, still-undefined role of Google. Although the Internet giant has never come out and said that it wants to be a UBI player, it keeps growing its reach in telematics. Its acquisition of Waze last year gave it the technology to track cars, Eyal says, adding that Google has also invested heavily in driverless cars, geo-fencing and GPS technology.

In January, Google went a step further when it announced the forming of a global alliance — the Open Automotive Alliance (OAA) — that will work toward open innovation in the automotive space and make it easier for mobile app designers to create individual apps that work across the automotive segment. Audi, GM, Honda, Hyundai and Nvidia have joined the alliance.

Eyal’s understanding is that following its acquisition of Waze, Google has been having conversations with different insurers about potential services they might offer around tracking and GPS devices. “So all indications point to their involvement in the telematics industry,” Eyal says. “What isn’t clear is what parts and what role in the value-chain they might be interested in taking."